Tax Advantages of Structured Settlement Annuities

When it comes to annuities, there are a number of details that should be understood.  A structured settlement actually offers a number of benefits that some people know nothing about, such as benefits associated with tax.  In this article, we wanted to cover some of the tax advantages of structured settlement annuities to show you how you could make money received work for you.  Although receiving scheduled payments is great, especially if you were no longer able to work due to an injury that led to the settlement, knowing you have opportunities to make more money or get a ta

When it comes to annuities, there are a number of details that should be understood.  A structured settlement actually offers a number of benefits that some people know nothing about, such as benefits associated with tax.  In this article, we wanted to cover some of the tax advantages of structured settlement annuities to show you how you could make money received work for you.  Although receiving scheduled payments is great, especially if you were no longer able to work due to an injury that led to the settlement, knowing you have opportunities to make more money or get a tax break is outstanding news.

Making the most of Tax Advantages on Structured Settlements

It is common for people in this situation to feel a little overwhelmed when it comes to making the right moves and justifiably so.  Now, an annuity offers several advantages when compared to other types of settlement options.  For instance, you would enjoy tax advantages of structured settlement annuities on future payments.  Often, people think that investing an annuity whereby periodic payments are involved means that the insurance company pays the principal amount over time, but this is incorrect.

In truth, interest and the principal are paid on annuities for every pay cycle.  Therefore, the how and when of receiving payments does not matter because according to the Internal Revenue Service, interest generated via the internal return of that particular annuity cannot be taxed.  If you look at this compared to other settlement month, this difference is significant.  For instance, if you decided to take a lump sum payout over a structured settlement, you would be required to pay tax.

In addition to this, if you decided to invest some of the money from the lump sum payout on stocks and bonds, deferred annuities, money market accounts, or mutual funds, any gain would be taxed on income, and probably capital.  Because of this, an investment outside of structured settlement annuities would result in a great return than that actual structured annuity to help cover loss from taxes.  Look at it this way, by taking out a lump sum payout and seeing a yield of 5%, the amount of money put in your pocket would be less than what you could make with the structured settlement.

Because there are significant tax advantages of structured settlement annuities they are often used to avoid paying income tax but also to establish a reliable source of income that would carry you into the future.  You will also find that an investment associated with a lump sum payout could actually erode when investments do poorly.  Obviously, this means you would have fewer funds from which to generate income or use for daily living expenses.  Another risk of taking a lump sum payout is that if the economy were to take a dive, this money would suffer.

By comparison, along with tax advantages of structured settlement annuities, money from this agreement would not be affected by a fluctuating market.  Therefore, even in a declining market, you would not experience a decrease.  You would also find that scheduled payments would be credited regularly and established so over spending would be prevented.  While some people choose a lump sum payout, there are far more benefits to a structured settlement, especially in the realm of taxes.